04 March 2013

Insurance Europe's key messages on the EU Audit legislative package

Insurance Europe strongly supports high quality audit in Europe. However, it does not believe the proposals as presented by the EC on 30 November 2011 or the revisions following the discussions in the EP and Council will lead to improved audit quality.

Insurance Europe's main concerns are as follows:

Mandatory audit firm rotation is not appropriate

Insurance Europe does not support mandatory audit firm rotation and believes that the audit committee should retain the right to freely select the most suitable auditor. Changing audit firm is a time-consuming and costly procedure, without any guarantee that audit quality will be effectively increased. Mandatory audit firm rotation would inevitably lead not just to higher costs but also to a reduction in audit quality due to the loss of the expertise needed to audit insurers, whose operations are inherently complex.

Mandatory tendering for non-audit services & related financial audit services

Insurance Europe does not support the mandatory tendering for non-audit services and related financial audit services. It considers mandatory tendering for these services to be a bureaucratic and very costly exercise. Insurance Europe is of the opinion that tendering processes should instead be at the discretion of the company seeking these services.

Restrictions on provision of non-audit services are excessive

Insurance Europe is strongly against the proposals that would extend the current limitations on non-audit services. There are already many national requirements and professional practices in place to ensure auditor independence and to prevent conflicts of interest when providing non-audit services, in addition to the safeguards provided by current European law. In Insurance Europe's view it is the responsibility of the audit committee and the audit firm to prevent conflicts of interest before accepting non-audit services.

Consideration of smaller audit firms in the selection procedure should not be obligatory

Insurance Europe does not support the obligatory consideration of smaller audit firms when an audit committee is conducting its selection procedure. It considers this requirement to be inappropriate and operationally challenging, especially in the case of international insurance groups.

Constraints on fees for related financial audit services could reduce choice and audit quality

Insurance Europe is against a constraint on fees for related financial audit services, as audit firms are usually best placed to perform these services, which normally are legal requirements (e.g. interim reporting). The effect of such constraint would be a reduction in choice and could also reduce audit quality, given that few firms have the necessary insurance expertise. Instead, Insurance Europe supports transparent disclosure of fees to give appropriate information about auditor independence.

The creation of pure audit firms will not improve audit quality

Insurance Europe opposes the creation of pure audit firms, as this will not lead to improved audit quality and may in fact even reduce it. The proposed restrictions are counterproductive, more costly and will restrict the choice and access to specialised services. Pure audit firms will not be able to provide the same high quality personnel with the expertise needed, especially in the insurance industry.

The proportionality principle should apply to Public interest entities (PIEs)

Insurance Europe does not support the treatment of PIEs as if they are the same. It believes that the ‘proportionality principle’ should be applied, especially for smaller and unlisted insurers. Hence, it would support a Member State option to relieve the administrative burden on PIEs that are small and medium sized enterprises (SMEs).

Impact on audit committee and boards has to be reconsidered

Insurance Europe does not support the extension and changes to the role and responsibilities of the audit committee - these should remain clearly defined within the framework of good corporate governance.

Audit Report has to be meaningful

Insurers are major institutional investors and preparers of financial statements. As such, insurers are interested in short and meaningful audit reports. Insurance Europe believes that the usefulness of the audit report will be compromised if requirements of no additional benefit to users were to be introduced.

Mandatory joint audit does not lead to an increase in audit quality

Insurance Europe is of the view that joint/shared audit does not lead to an increased quality of statutory audit. It would like to point out the inefficiencies and extra costs that are involved when dealing with more than one auditor.

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